Bonds may be next flashpoint in Minnesota governor's relationship with GOP lawmakers

CHICAGO – Minnesota Gov. Mark Dayton will press lawmakers to borrow $1.5 billion to fund infrastructure work for the state’s higher education institutions, state building repairs and local water, building, and affordable housing projects.

Dayton’s capital package, known as the bonding bill, would provide funding for 218 projects through state borrowing. It relies on $1.43 billion of general obligation bonds, $100 million of appropriation-backed borrowing through the state housing agency, and $10 million of appropriation-backed borrowing for the university system.

“My public works proposal would make significant, needed investments to provide world-class educations for our students, guarantee clean, affordable water for more of our communities, and ensure our state has the infrastructure necessary to grow and compete in the modern economy,” Dayton said in a statement.

Dayton, a member of the state’s Democratic-Farmer-Labor Party, faces pushback from the Republican-controlled legislature on the package’s size.

“While Gov. Dayton once again proposes a bonding bill that busts the budget, the Senate Capital Investment Committee is busy touring the state doing the hard work of setting priorities for a bill the taxpayers can actually afford,” Senate Capital Investment Committee chairman David Senjem said in a statement.

The administration argued the state can afford the proposal based on its low cost of borrowing with its high-grade ratings and recent revenue forecasts.

“My public works proposal would make significant, needed investments," said Minnesota Gov. Mark Dayton.
Bloomberg

“Governor Dayton’s $1.5 billion public works bill remains well within the state’s $3.5 billion in available bonding capacity,” said Minnesota Management and Budget Commissioner Myron Frans.

The $3.5 billion in capacity is based on current revenue estimates as the state adheres to a policy limiting debt service to a percentage of revenues.

The state in its annual November forecast projected a $188 million deficit in its two-year $46 billion budget, marking an end to rosier projections in previous forecasts released every November and February.

That figure would be cut by $170 million if Congress renews the Children’s Health Insurance Program. But the $188 million also grows to $302 million when the legislative appropriation vetoed by Dayton last year is added in. Lawmakers are expected to soon attempt to reauthorize it.

Dayton vetoed the appropriation in an attempt to pressure the GOP leaders to return to the bargaining table over the size of a tax cut package. The GOP believed the relief was affordable given the $1.6 billion surplus projected in previous forecasts.

The final size of the infrastructure package and project list will depend both on the legislature and the annual February revenue forecast that will provide a fresher picture of the state’s economic condition. The state also benefits from a $1.6 billion rainy day fund and $350 million in a cash account.

Minnesota won back one of its triple-A ratings in 2016 when Fitch Ratings raised its rating from AA-plus. Moody's Investors Service and S&P Global Ratings rate the credit at the Aa1 and AA-plus.

S&P said a dispute over the legislative appropriation that has entangled repayment of some lease appropriation Senate building debt introduced an element of political risk into the state's credit profile although no debt service payments have been missed.

Dayton's package would provides $299 million to the University of Minnesota, which serves nearly 68,000 students on five campuses. The funding is primarily aimed at maintaining and preserving existing infrastructure. Another $243 million would fund projects at the Minnesota State Colleges and Universities, which operates 54 campuses throughout the state that serve 375,000 students. It would primarily fund classroom and facility improvement projects.

The package would earmark $458 million in funding for state building upgrades, $167 million for water infrastructure projects, and $115 million for affordable housing projects, with additional funding for other local and state projects.

The state typically passes a two-year operating budget in odd-number years and a major capital package in even years. The 2016 session closed without passage of a capital bill due to acrimony between lawmakers and Dayton, leading the governor to float a nearly $1.5 billion package last year along with the operating budget. Lawmakers ended up passing a more modest plan of nearly $1 billion.

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